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Wells Fargo Case Unlikely to Prompt Republican Embrace of CFPB

Sept. 15 — The Republican-controlled Senate Banking Committee wasted no time in scheduling a
hearing on the Consumer Financial Protection Bureau’s enforcement action targeting
Wells Fargo’s aggressive sales tactics. Just don’t expect a change of heart from those
members who have long been critical of the agency.

Congressional Democrats have cited the action against Wells Fargo, which was fined
a total of $185 million for covertly opening accounts without customers’
knowledge or consent, as evidence of the CFPB’s value and why its independence shouldn’t
be scaled back.

Republicans, however, said they first want to hear from Wells Fargo Chief Executive
Officer John Stumpf and CFPB Director Richard Cordray whether the CFPB uncovered wrongdoing
or merely acted on information the bank disclosed itself.

‘Not Our Favorite.'

“The CFPB, naturally, is not our favorite agency,” Sen. Mike Rounds (R-S.D.), a committee
member, told Bloomberg BNA. “We recognize that there is very little oversight, and
we'd like to know whether they were involved in an investigation that uncovered something
or if they're simply receiving a penalty or assessing a penalty from something that
was self-disclosed.”

Reporting by the Los Angeles Times on Wells Fargo account practices prompted an investigation
by the Los Angeles city attorney and then two federal regulators—
the CFPB and the Office of the Comptroller of the Currency. In assessing a record
$100 million fine, the CFPB said bank employees, spurred by sales targets and compensation
incentives, boosted sales figures by covertly opening accounts and funding them by
transferring funds from consumers’ authorized accounts often racking up fees or other
charges.

The committee began looking into the Wells Fargo case after the CFPB announced the
penalties. The chairman, Sen. Richard Shelby (R-Ala.), thought it was important to
have a hearing, which panel Democrats requested, before lawmakers leave town until
after Election Day, according to a Republican committee aide.

The Full Story

“He wants to know the full story from Wells Fargo, and also to hear the full extent
of involvement of regulators— what they did do and what they didn’t do,” the aide
said. In addition to Stumpf and Cordray, Comptroller of the Currency Thomas Curry
and James Clark, chief deputy in the office of the Los Angeles city attorney, will
also testify at the Sept. 20 hearing.

Sen. Elizabeth Warren
(D-Mass.) has indicated she plans to press Stumpf about whether corporate executives
knew about the practices. “Make no mistake—this business with Wells Fargo isn't over,”
Warren said in an e-mail to supporters. “How could the bank create more than 2 million
fake accounts without senior executives knowing?”

The willingness of Senate Banking Republicans to hold the hearing stands in contrast
to the silence on the matter among Republicans on the House Financial Services Committee.

House Bill and Hearing

At a House Finance Committee hearing Sept. 13 to consider the Financial CHOICE Act,
which would overhaul the 2010 Dodd-Frank Act and scale back the CFPB's authority,
five Democrats but no Republicans mentioned the Wells Fargo case. At the hearing,
Rep. Randy Neugebauer (R-Texas) said he remains “concerned that many bureau actions
demonstrate regulatory paternalism that assumes that the American consumer doesn't
know how to make choices for themselves.”

The CFPB has come under fire ever since its establishment under the Dodd-Frank Act
from congressional Republicans, who have pushed for remaking the agency's governance,
from a single-director model to a five-person commission, as well as for bringing
the bureau under congressional appropriations.

“It wasn't that Republicans were not supportive of consumer protection,” said Sen.
Bob Corker (R-Tenn.), who sits on the committee. “It was the setting up of a balance
where you had a board, not just one person, a way of the rulemaking process being
somewhat more democratic. I think to say Republicans are opposed to consumer protection
would be an overstatement. I think it was the set up of it.”

He said Republicans feel that in some cases the CFPB has overstepped its bounds, but
added, “That's not to say everything they've done has been bad.”

Corker said he was somewhat surprised a Senate Banking hearing was scheduled, given
that the committee hasn't held many for some time, but added he looks forward to it.

Timeline In Case

How the CFPB will be viewed by policymakers as a result of the Wells Fargo crackdown
depends on the timeline in the case.

“We want to hear all the facts first. And then we can make an intelligent decision
about whether it impacts our interests in seeing changes made at the CFPB,” Rounds
said. “And along with that since in this particular case Wells has clearly indicated
they've had an issue that they've had resolved, we're going to want to hear what Wells
says they've done to resolve it. And I think other financial institutions can learn
from that as well.”

Isaac Boltansky, an analyst at Compass Point Research & Trading, told Bloomberg BNA
the legislation was a reason the Wells Fargo issue snowballed so quickly on Capitol
Hill, leading Democrats to point at the enforcement action “as a perfect example of
the bureau’s importance.”

Furthermore, he said, “we are two months away from an election that has been defined
by populist rage and this issue fits squarely into that issue profile.”

Mark Calabria, director of financial regulation studies at the Cato Institute and
a former Shelby aide, said facts in the matter are still being collected but that
he doesn't think the Wells Fargo case changes anyone's mind about the CFPB.

“It didn't seem to impact votes on the Choice Act, for instance,” Calabria told Bloomberg
BNA. “Partly, it's not clear CFPB got involved until long after the problem was discovered.
Certainly, LA city appears to have been more involved than CFPB in any actual work.
But again we don't know, and I suspect one purpose of Shelby's hearing is to find
out ‘who knew what and when.'”

To contact the reporter on this story: Jeff Bater in Washington at
jbater@bna.com

To contact the editor responsible for this story: Mike Ferullo in Washington at
mferullo@bna.com

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